Quick Tax Saving Tips For SME Limited Companies
Saving both you and your company money ...
POSTED BY JONATHAN VOWLES ON 14/11/2017 @ 8:00AM
Christmas is nearly upon us, and the tax return deadline is looming. So for many small businesses, it's time to look at their tax affairs and see how they can minimise their tax bill ...
My tax saving tips will help to reduce the money you pay to HMRC!
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This week, we're going to look at small limited companies. If you run one, here are some quick tax saving tips that will help reduce what you give to HMRC in January:
If you have lent money to your company, leave it there and charge the company some interest. An individual can earn up to £1,000 interest tax-free saving £200 as a basic rate taxpayer, up to £500 tax-free saving £200 for a 40% taxpayer and nothing for a 45% taxpayer.
There is a form the company needs to fill in and a tax deduction made on any payments of interest, but the individual can get that tax repaid to them, and the interest is free of income taxes if it is within this allowance.
On the other hand, if you have borrowed money from your company - which might be because you have drawn out more than the available distributable profits - make sure you fix this.
This can be either by paying some money back to your company or in restricting how much you take out over the next few months. The reason for this is to avoid (or minimise) the two potential tax charges, one on the company and one on the individual.
Doing this saves the company a tax charge of 25% of the amount still owed to the company 9 months after the year-end.
Meanwhile, the individual saves a P11d 'benefit in kind' charge if the loan is larger than £10,000 and the loan is interest-free or below the official rate of interest (currently 3%).
It is also worthwhile having a formal loan agreement with your own limited company to protect you from a potential HMRC challenge to tax your payments under the PAYE rules.
If you are not already making full use of the dividend allowance, then look at ways to do this. The dividend allowance means that in the current tax years £5,000 of dividends are income tax-free, which could save you £1,625 in income tax.
This is going to reduce to £2,000 from April 2018 (subject to confirmation of this in the forthcoming budget).
If you are thinking of ways to make use of the dividend allowance, then be careful over gifting shares to family members.
Gifts between husband and wife are generally free of tax, but the settlements legislation can affect gifts to other people. Don't get it wrong and incur an unexpected tax charge!
You can charge your business rent for working from home, but you need to consider how much quite carefully. The rent-a-room allowance does not cover rents charged for office space!
Therefore, you need to carefully work out what is a fair proportion to avoid simply incurring a personal tax charge on this rent.
Importantly, if you charge your business for the use of your home, it can be worthwhile having a formal agreement that documents that the business does not have exclusive use of the space, otherwise HMRC might charge you capital gains tax when you sell your house!
If you are looking for more tax saving tips then get in touch with me on 01234 752 566 or click here to ping me an email and let's discuss some bespoke tax planning for you and your business.
Until next time ...
If you're looking for a new accountant to help grow your business, do visit www.jvca.co.uk and discover how Jonathan Vowles Chartered Accountants can help you!
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.